Two trains are driving toward one another. The first train, Money, leaves Town A at 5 am traveling at 60 miles per hour. The second train, Health, leaves Town B at 7 am traveling at 70 miles per hour. The distance between Town A and Town B is 455 miles. What is the EXACT time that the collision will occur assuming Money and Health remain constant?

Retirement planning is not simple math any longer. Variables such as interest rates, chronic health issues, life changing events such as falls, and other unforeseen events make calculating stops on the Health train difficult. The Money train faces its own obstacles such as unexpected slowdowns, the unlikely scenario of speed as a function of money ever increasing or running out of power altogether

The complicated journey of Money and Health and their intersection is the foundation of the top ten trends for senior housing and senior living in 2014. While 2014 is by no means the beginning of senior living business, it will be the first year where the main assets of retirees, home equity and investment portfolios, will not be the anchor of decision making that they were during the past five years. The new anchor will be the realistic, responsible lifestyle choices retirees make to ensure their how and where they spend this time in their lives and the ability to live within their means on their current and future resources.

With the Dow Jones Industrial Average reaching new highs in 2013 and home prices up 13% year-over-year according to the Case-Shiller Index as of October, the outlook for retirement and seniors is not the wasteland of the past five years. Despite these positive moves, challenges remain as low and middle income seniors struggle to align their fiscal and health choices with their current resources, both personal savings and entitlements. Longevity and life span will continue to increase with the coming years but a shortage of funding, personnel and declination of spirit may balance these new realities of aging for consumers and businesses.

The global population is getting older and larger which means the business leaders in senior living will need to stake their claim in specific demographic, socioeconomic and geographic segments of this population in order to be successful. For those experienced in senior living, it is nearly impossible to be all things to all people and be successful.

The Top 10 Trends for senior living in 2014 identify some of the challenges of solving the puzzle of the Money and Health trains collide.

All aboard!

1. 80 is the new 65

Once upon a time, it was 40 is the new 30. With seniors redefining retirement, the concept of age and retirement has been disrupted. This disruption has extended the professional lives of the 65-plus demographic, adding more time to their careers past the traditional retirement age. According to a poll released in October by by the Associated Press-NORC Center for Public Affairs Research at the University of Chicago, more than 80 percent of 50-plus workers say that it is “somewhat likely” they will work to earn money in retirement and that they expect to retire at least two years later than their expectation was at 40.

As a result extended professional lives based upon needs and desire to stay active, providers are seeing an older resident —mid to low 80s— that is in need of higher levels of care than ever before.

In 2009, people reaching age 65 had an average life expectancy of an additional 18.8 years (20.0 years for females and 17.3 years for males) according to the 2011 profile of Americans by the Administration on Aging. Advances in medicine and healthcare continue to add to longevity, sometimes at the cost of quality of life.

Consider that the over-85 population is increasing dramatically as more seniors are living longer through advances in medicine. People 65-plus represented 13.3% of the population in the year 2011 but are expected to grow to be 21% of the population by 2040. The 85-plus population is projected to triple from 5.7 million in 2011 to 14.1 million in 2040.

The growing availability of services in-home and within close proximity to homes also has contributed to the longevity and independence trends. The senior housing and senior living business community needs to prepare for the growing shift up the age ladder to be better positioned to serve those in the 80+ category and less about just the 50+.

2. Longevity and Retirement Savings – Not Enough Fuel in the Tank

It’s hard not to feel good at the start of 2014. During 2013, the Dow Jones Industrial Index gained 27%, its best performance since 1995. Many investors have recouped the final portion of the losses from the Great Recession where at one point early baby boomers, born between 1946 and 1955, had a median net worth of $173,480 in 2010, down about 28% according to a Pew Research study.

Besides a rising stock market, home prices are seeing consistent gains across the United States and some markets are at the highs of 2007 or better depending on the location. With this increase in these asset values, the dream of retirement is more attainable than it was during the past few years.

U.S. households headed by boomers between the ages of 55 and 64 have a median net worth of nearly $144,000—almost 8% lower than the median net worth of households headed by those aged 75-plus, according to data from the Census Bureau.

Even with this positive trajectory, funding 20 years of retirement on $200,000 is still a challenge when looking at the current costs of healthcare. The 2013 Genworth cost of care survey showed that the media rate for a single occupancy, assisted living had a national media average of $3,450.

Yet with all the good news and savings, many retirees and future retirees are beginning to express greater concerns that their savings may not be enough to combat challenges such as increased living expenses and longer life expectancy. Financial planners have encouraged saving for retirement for many years but it is starting to become evident that those plans have not been either aggressive enough, executed as well by retirees or a combination of both.

The timing to achieve the concept of full retirement with adequate resources has become more challenging based upon the variables, both those controllable and uncontrollable, of an increased lifespan.

Besides the increased day-to-day expenses, the expenses near the end of life continue to increase. The Journal of General Internal Medicine in February 2013 showed that the average out of pocket expenses in the five years prior to death was $38,688 for individuals and for couples where one of the two spouses died, the total average expense was $51,030.

It would typically be expected that returns on retirement investments would keep up, but rates of returns on assets such as fixed income investments have lagged the last few years as interest rates have remained low. While an improving economy and rising interests rates are better for the future, they will not grow fast enough to make up for deficient returns and rising expenses over the last five years.

With so much uncertainty on expenses and health, 2014 will highlight the need to save even more than planned as the retirement dream meets the reality of longer lifespans. As time goes on, there will be greater generational conflict as current and future retirees run out of money and put greater strain on government programs.

3. Margins & Missions – The Marketing Battle between Not for Profits & For Profit Providers

“Greed is Good” – Gordon Gecko, Wall Street

One of the growing divides in senior housing lies amidst the discussion about the roles and responsibility of for-profit and not for profit senior housing.

Some such as LeadingAge, an association that represents the senior housing industry and its non-profit operators, argue that the future of senior housing lies in the growth of non-profits and their missions of service or in some cases a cooperative model.

Others insist that for-profit providers are creating levels of care that provide innovation driven by reducing costs and creating incremental revenue growth, while also generating sufficient returns to shareholders.

The disconnect lies not within the context of the delivery of product and service but as a differentiated marketing message.

Both models serve essentially the same customer and both have similar financial structures that enable them to deliver their levels of care.

The board of directors of a not-for-profit senior living community should encourage and enable management of those communities to run them in a responsible manner that maximizes revenues and keeps expenses reduced. It would be irresponsible to run a business that relies solely on continued capital infusions by constituents, support groups, religious organizations or capital/debt fundings to cover operating losses. A not-for profit provider’s mission cannot be simply expressed as a reduction in profit margin in comparison to a for-profit provider; it is a balance of economics, faith, community and service among other facets.

While the two sides may debate the pros and cons of the two operating models, the primary mission of both is the same: to provide the best senior care possible.

The focus on compassionate care vs. efficiency of care should be irrelevant as both should strive for both, but their philosophical differences may ultimately tip the scale toward one type of care versus the other. The discussion of non-profit senior housing communities versus for-profit will be a louder discussion with more voices rising for the debate in 2014.

4. Technology – Information Systems & Data Matter More

With the advent of the Affordable Care Act and the growth of Accountable Care Organizations, the importance of strong, core data processing systems will become critical in 2014 at the expense of the some of the consumer facing technologies such as tablets, smart phones and wearable devices.

These operators continue to invest money in their systems to ensure the maximum efficiency by creating a common infrastructure across their organizations.

During a conversation at recent trade show, a CEO of a multi-site, national senior living provider said he looks at statistics every morning on daily key performance indicators with a focus on care response and revenue statistics.

Without sophisticated information systems, the small and medium sized operators are at a disadvantage versus their larger competitors.

Information systems that can communicate efficiently with the systems employed within senior care and senior housing will become almost as important as the levels of care that are provided.

For smaller organizations, the data may exist in separate systems and many cases is unable to communicate with each other and these silos represent integration challenges. Having these silos communicate seamlessly is a challenge for any provider, both large and small.

While this may seem logical, reality may hit when looking at budgets for upgrading or replacing systems when margins remain tight and capital expenditures for projects such as information system upgrades remains tight. Better systems will enable companies, both large and small, to operate more efficiently to achieve more efficient operations and in some cases faster reimbursements.

Whether it is accurate and timely information from core processing systems or information needed for analyzing historical data on forecasting population, migration rates and other planning metrics, the demand for data is critical for the growth and success of the senior housing industry in 2014.

5. Rise of the Lawyers

Senior care can sometimes be a lesson in risk management on a day-to-day basis.

Other than solid policies and procedures and adequate staffing/training, a strong relationship with either your internal counsel or external counsel could be one of the most important parts of any organization’s risk management strategy.

Operational Risk

Transactional – Real Estate, Financing

Employment

Regulatory

Safety

State Regulations

Federal Regulations

Increase your legal budget for 2014. We never said our trends were cheap.

P.S. SHN was NOT compensated for this trend nor does trend #5 constitute nor should be construed as legal advice.

6. Financing – The Inevitable Rise of Interest Rates

Low interest rates have fueled the growth senior housing industry for the past 5 years. Now that the broader economy is showing signs of sustained improvement, interest rates have increased in the latter part of 2013 and will continue to rise in 2014.

Historically, rates continue to be at generational lows, but the days of cheap financing to fuel better profitability and allow for cash-out refinancing for improvements may be fading. With rising rates and corresponding increased financed expenses, lenders may look for greater equity contributions or look at other mitigating factors more closely than they have in the past as margins for error in operations become slimmer.

Rising rates will be a positive and negative for consumer at the same time. Increased rates will be problematic as the costs to finance new purchases will rise. Increased financing costs will ultimately be passed along to consumers in senior housing communities through higher rents and fees. However, rising rates should help increase returns on retirement assets

7. Real Estate – Cap Rates, Sales, and Flexibility & Choice in Design

Real estate trends for consumers and the senior housing industry in 2014 will be positive in many ways.

Compression of cap rates will continue for high-end property based upon the lack of inventory and remain steady to slightly increasing for secondary and tertiary markets for both the middle and lower end product.

The compression of cap rates will be based upon new buyers coming into the market competing with experience players in the senior housing industry. When there used to be two to three groups looking at any particular deal, now there are 15-20.

Experienced owner/operators will stick to their operating models and remain disciplined in their strategy while newer entrants desire to acquire product at any cost will drive the continued compression of cap rates in 2014.

The improved real estate market will also provide a greater comfort levels for seniors selling their homes to move into senior housing communities.

One of the major features for senior housing companies pitching to prospective customers will be their flexibility. The flexibility will allow spaces in communities to morph and change over time as their customers’ needs and desires change when it comes to furniture, fixtures and equipment. Flexibility will provide the customer the appearance of control and customizability and show the operator as accommodating and innovative while being able to pass any cost on to their customer.

A challenge for senior housing communities will be to manage expectations on delivery of customizability. As consumers have become more familiar with the Amazon Prime model—order today, receive it tomorrow—senior housing communities will be under pressure to deliver faster than ever before. Whether apartments with bare, white walls or multi-care treatment rooms, customization is going to be the primary differentiator between senior housing communities in 2014.

“An ounce of prevention is worth a pound of cure.” – Benjamin Franklin

ProPublica’s Frontline “coverage” of Emeritus was the senior living story of last year.

While it was not the story any owners, operators and trade organizations wanted to see in 2013, it certainly won’t be the last of its kind.

Nevertheless, the senior housing industry should expect that any news outlet in print, digital and television will hone in on stories identifying the problems of various deficiencies within the realm of senior living — without highlighting all the success stories as well.

This heightened exposure is both a challenge for the industry as well as an opportunity. Many industry executives will try to spin stories about the benefits of caregiving and support systems that the industry provides as the corollary to the negative.

Shifting PR from bad to good will not benefit the industry. Rather as the industry reacts to negative publicity, the root cause of the highlighted issue must be examined and fixed like any problem so that the risk is managed, mitigated and eliminated. Every business faces similar challenges and has to address matters in this way. Softening the blow of negative publicity is always a challenge and will be for years to come. A balanced message for the senior living industry is required, there are thousands of great stories about the industry for every one “Frontline.”

Everyone across the spectrum being held more accountable. Hire a good lawyer (See Trend #4) and invest in public relations for assistance on strategy for defense and offense.

9. Staffing & Workforce Needs

Labor issues maybe the greatest long-term challenge for senior living and senior housing. As the demand for senior care increases, so do the labor needs to serve the growing demographic.

Senior living jobs are typically associated with low pay, high stress, increasing injury rates and working nights and weekends.

Managing the activities of daily living requires the care services from a combination of licensed and unlicensed health care workers for home health care services.

According to the U.S. Bureau of Labor Statistics, Nursing and Residential Care Facilities employees had an average hourly compensation for Production and Non-Supervisory employees at $14.47 per hour with the average work week being comprising 31.7 hours.

Additionally, illness and injuries at nursing and residential care facilities occur more frequently than other high-risk occupations such as the transportation and warehousing industries based upon 2012 Bureau of Labor Statistics data. The increasing number of injuries and illness not only is bad for employees but raises insurance and legal expenses for operators (see Trend #4).

With all of these challenges of high-risk, low paying jobs, the US needs to craft a strategy to attract and retain long-term care workers. This strategy must come from the federal level and provide incentives for workers and employers to invest in training through a series of tax breaks, grants and creative community outreach programs.

Immigration reform discussion began in earnest during 2013 and part of the solution may involve incorporating long-term care needs as part of a well crafted immigration reform platform to provide incentives to provide a means to an end for both US senior care policy and individuals seeking entrance to the US. This concept could be employed in conjunction with various projects in senior housing using EB-5 funding as a means to raise debt and equity capital to launch new projects.

If a link between senior care and immigration reform seems too much of a stretch, the US should consider looking to its past in the form of resurrecting an alternative version of the GI Bill.

Service members with an honorable discharge received low-cost mortgages, low-interest loans for new businesses, payments of tuition and living expenses for college or vocational training and other benefits.

Providing a mechanism to all Americans searching for a means to better job prospects through furthering their education maybe a good carrot to encourage more Americans to enlist in the aging services industry and become professional caregivers.

Without a creative solution that provides incentives to average Americans, the senior care industry will be relegated to those who choose to serve a mission at a greater purpose or truly enjoy working with seniors. If employees in the senior housing/senior care industry currently don’t fall into either of those categories, they are probably simply looking at their job as a means to a paycheck with little personal or professional investment. Not a good prospect for the long-term needs of the long-term care industry.

10. Business Brand & History Matter

An important trend that matters more today in senior care is the importance of brand and historical relevance. The number of startups coming into the senior service and product market continues to increase on a daily basis with new names, places and faces. Despite the enthusiasm of employees at these firms, the fancy powerpoint slides and excellent public relations and media exposure, many of these new entrants are banking on either their management bios and/or their funding. While the latter two are extremely important, the baseline question may come down to how many communities and users does your product/service have today?

While the barrier to entry may be lower in some parts of the senior housing industry and higher in others, the inherent level of trust, commitment – both financial and industry related, are hard to develop without one thing: time and experience.

Familiar brands in senior living such as Sunrise, Brookdale and LifeAlert are just a few of the household names that America is familiar with based upon their long history serving seniors on a national basis. Regional exposure and familiarity is important as portions of the senior living business tend to have more a of regional footprint than other industries. Branding will matter more in 2014, for both the new entrants seeking legitimacy as well as those well established market players.

For owners/operators looking to reposition communities, the challenge will be to effectively change the public perception of the ‘old brand’ with the new brand. The repositioning of the community needs to incorporate not only the external marketing but the financial, operational and internal needs of its residents.

Senior care providers and senior housing companies will look to position their brands and trusted providers more in the coming years along the lines of banks and insurance companies. This not only goes for bricks and sticks but for all companies that serve the senior market. Some companies are explicitly exploiting these virtues already in competitions today questioning whether a competing vendor has the management and/or financial strength to remain a long-term player in the vertical segment. Examining, identifying and managing vendor risk will be a growing part of the risk management function for owners and operators in 2014.

For those of you still stumped on the original train question, the answer is here.